News Review: Economics
Stamp duty changes won’t make a difference by
Fionnuala Earley,
UK consumer economist, Royal Bank of Scotland
There wasn’t very much the Chancellor could do in this Budget. He said he wouldn’t be giving anything away and he stuck to his word. Overall it was a fiscally neutral budget but there was something in the tax mea- sures for the top earners and something for those on the lowest incomes. But those in the middle got nothing much at all.
In the housing market the rise in the stamp duty rate
from 5% to 7% for proper- ties worth over £2m caused the biggest fuss. The effect of the new threshold means that wealthier owners buying property in the new band will see their average stamp duty bill rise by £85,000 to over £300,000. The Treasury estimates that the new higher band will bring in an extra £235 million in the next financial year if there was no change in behaviour. But the likely outcome is that the new pol- icy will change behaviour by causing a bunching of trans- actions just below the thresh- old and consequently de- pressing prices in the higher price range.
Overall, raising the thresh- old from 5% to 7% for prop- erties over £2m is unlikely to have a huge impact on the UK market as a whole. Transac- tion levels are depressed but sales of property at this price and above account for only 0.2% of all UK transactions according to Her Majesty’s Revenue and Customs data. At such a small proportion the change is unlikely to dis- tort the majority of housing transactions.
About 80% of all transac- tions above the £2m thresh- old are in London. But even within London property sales of this value account for only about 1% of all transactions. The average London proper-
ty price is about £270,500 and more than half of transactions are around or below that val- ue. So, even here, the effect of the change in the threshold is not likely to distort main- stream activity that much. But it isn’t all about the higher priced property. The Office for Budget Re- sponsibility expects the UK economy to recover and not go into another recession. It also expects property transac- tions to grow strongly in 2013 when credit restrictions start to ease. But we shouldn’t get too hopeful about a big improve- ment in the housing market in the short term. There are still many hurdles ahead.
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